Venture Capital course a real study in Silicon Valley

June 27, 2011

San Jose Mercury News; Mike Cassidy; June 27, 2011

John Herndon's Venture Capital Acquisition class at Cal State East Bay could just as easily have been called Silicon Valley 101.

His graduate students descended into the dark world of startup funding, a place where grown men and women are known to exaggerate, beg, misinform and cut each other's throats at the drop of a term sheet. But, Herndon figures, if you're going to work in the real world, then it helps to learn in the real world, too. And no MBA students were injured in the course of his class.

"It was everything I wanted it to be, something they could really sink their teeth into," Herndon says. "This wasn't just another class going through a sleepy lecture."

Herndon, a lecturer at CSU, wondered: Why go through another case study or cook up some sort of simulation? Why not find some actual companies, learn about what they actually do and then go out and try to raise some actual money for them? Think of it as part school of hard knocks and part school of opportunity knocks.

"This course, this project, gave us practical knowledge of how the world works," says Omsmriti Bhattarai-Chhetri, a newly minted MBA working as a financial analyst for Clorox. "It's not an easy world out there."

Long before the spring quarter started, Herndon took to LinkedIn, posting his proposition: He'd offer student help to young companies that were looking for financing. The response was big. At one point he was sifting through 36 companies.

"Some of them had some really strange ideas," Herndon says, like the entrepreneurs who were interested in building a commodities market based on the South African agrarian economy. He narrowed it down to nine enterprises, which had plans for tangible products.

Then Herndon spent the first few weeks of the class teaching his students the basics: How to write business plans, create forecasts, analyze industries, assess markets, converse meaningfully with CEOs and CFOs.

"At the start of class it was basically boot camp," says Edward Ryan Florendo, a student and senior analyst with a Los Gatos anti-piracy company. "It was one of the best classes that I had at CSU East Bay."

Once the students were armed with the skills to turn a business inside out and analyze it, Herndon turned them loose on the nine companies where they interviewed executives and offered advice based on their analysis. Each team produced a summary of how much funding would be needed and what it would be spent on. And they prepared a presentation, complete with PowerPoint, that companies could use to make their own pitches to potential funders.

"It really led to something very tangible on both sides of the coin," Herndon says. It gave the companies some valuable information about themselves. "And it gave the students very good, practical skills that they could really draw from later in their careers."

All of which was great. But Herndon says he had another goal in mind, too. The budget of the CSU system, as well as the University of California system and the K-12 system are all under attack. Herndon thought a class in which students actually go out and help businesses get a start would be one way to show the value of California's university system.

"I knew going into this project that this would be a great way to get Cal State East Bay out into the community," he says. "They would be known for helping businesses that actually contribute to the economy's growth."

Help how? Well, one of the nine companies, Gryphontech Industries, a fledgling Bay Area firm that would serve semiconductor manufacturers, landed $525,000 from an angel investor using the material from Herndon's students.

"It was the result of the work they'd done," says Gryphontech CEO Stephen Dasso. "To be honest with you, I wasn't expecting it."

The angel, it turns out, is Tserenpuntsag Tsedendamba (who goes by Mr. T, not surprisingly), a Mongolian businessman and judo champion who wants to settle in the United States on a visa that allows significant investors to move here legally.

"He was interested in the manufacturing, the Silicon Valley angle," says Rudi Williams, of Artesian Trading, who works as an investment adviser for Tsedendamba.

No, Tsedendamba is not your run-of-the-mill, Sand Hill Road investor. But even in that, surely, there must be a lesson.